Bharti Infratel takes market surge as cue for IPO

The offering is set to be India’s biggest IPO in two years after state-run Coal India raised $3.5 billion in October 2010. Photo: Pradeep Gaur/Mint

Updated: Fri, Nov 30 2012. 11 37 PM IST

New Delhi: In the biggest initial public offer (IPO) in two years and the second in a decade from the Sunil Mittal-promoted Bharti Group, telecom tower company Bharti Infratel Ltd is expected raise as much as Rs.4,530 crore through the divestment of a 10% stake.

The tower company has the three biggest GSM-based telcos—Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd—as anchor partners. It will offer 189 million shares in a price band of Rs.210-240 each. The offer will be of 146.2 million new shares and 42.7 million existing ones, the company said in a statement.

According to Bloomberg, the largest IPO prior to this was of state-run Coal India Ltd, which raised some $3.5 billion in October 2010. The Infratel IPO is seen as marking the revival of the IPO market, with the BSE’s benchmark Sensex having risen 24% this year to a 19-month high.

The IPO will also afford an exit for investment firms such as Temasek Holdings Pte. Ltd, Goldman Sachs and Citigroup Inc., which bought a total $1 billion stake in the infrastructure company in 2007.

Other Bharti Infratel investors include KKR and Co., which invested $250 million in the company in February 2008, valuing it at $12.5 billion.

The IPO will run 11-14 December, with qualified institutional buyers eligible to apply for shares only after 13 December. Retail investors, who can buy as much as 35% of the equity on offer, will get a discount of Rs.10 per share. No more that 50% of the issue will be available to qualified institutional buyers, the company said.

Bharti Infratel said the timing can’t be better.

“The timing is perfect for a number of reasons,” said managing director Akhil Gupta. “We are not a start-up dotcom company. We have a perfect business model with predictable revenues and globally comparable size.”

He said the business was much like an infrastructure company, where the assets are milked as much as possible. Bharti Infratel saw a return on capital of 37% and a return on equity of 27% in the last fiscal, Gupta said.

The telecom tower business has remained largely stable even when the sector hasn’t done well, he said.

“When the telecom services sector does well, then the tower sector also does well, but when the services part is not doing well, the tower sector is largely still assured of its revenues due to long-term contracts,” Gupta said. The business is likely to stay buoyant in the coming years with the explosion in data that is being anticipated.

Bharti Infratel has a 1.9:1 tenancy ratio and does not build towers prospectively. “We only build on receiving a firm order,” Rawat said.

The company also holds a 42% share in Gurgaon-based Indus Towers, the world’s largest tower company. The remaining stake is with Vodafone and Idea. Combined, the tower companies have a 37% market share and a 42% tenancy share, said chief executive officer D.S. Rawat.

The company is open to organic as well as inorganic growth through the acquisition of smaller tower companies.

Bharti Infratel will use Rs.1,090 crore from the proceeds to add 4,813 towers, and Rs.1,210 crore to upgrade and replace existing towers. Operators’ spending indicates demand for towers is going to increase, Gupta said.

On Thursday, rating agency Crisil Ltd assigned a rating of 4/5 indicating that the fundamentals of the company are above average compared with other listed companies in India.

Analysts are optimistic about the listing.

“The stock is a great concept stock, enabling market watchers and investors to see the India telecom capex story unfold as much of the future business of the larger telecom tower companies will depend on the coming data explosion,” said a Mumbai-based telecom analyst at a multinational brokerage firm. “The only challenges at this time are likely to be the regulatory issues, but the company management says that is unlikely to be a problem.”

The analyst, who didn’t want to be named citing company policy, was referring to the Telecom Regulatory Authority of India’s recommendation to charge the tower companies a licence fee. “We don’t see a threat from that. The minister has said last week that the issue will be resolved by the end of this year,” Gupta said.